US-Arab Economic Forum – Setting the Scene

Published: July 7, 2006

Share Article

Editor’s Note
The US-Arab Economic Forum in Houston last week got down to business with the opening “Town Hall” plenary session titled, “US-Arab Relationship in 2020: After the Oil.” In an address to the forum State Department Undersecretary for Public Diplomacy and Public Affairs Karen Hughes called for increased dialogue and cooperation between the United States and the Arab world. The distinguished panel that followed was led by the presentation of H.E. Abdullah Zainal Alireza, Minister of State, Kingdom of Saudi Arabia. He discussed economic developments and reforms in the Kingdom and the outlook for the next 10-15 years. Minister Alireza was introduced by forum moderator and co-founder of AMEAC Sam Hamdan.

Moderator: I would like to introduce His Excellency Sheik Abdullah Alireza, the Minister of State for the Kingdom of Saudi Arabia. He is the former Chairman of the Jeddah Chamber of Commerce and one of the most successful private sector leaders in the Arab world. He headed the WTO negotiation on behalf of the Kingdom and he would like to share with all of you today the reform agenda in Saudi Arabia and the progress that has been made so far and the prospects for the future. Please welcome His Excellency Sheikh Abdullah Alireza.

H.E. Abdullah Zainal Alireza: Thank you very much Sam [Hamdan]. I think there are more successful businessmen that I can see sitting with us here today. But thank you.

This is a very opportune time to talk about what is happening in the Arab world and especially in Saudi Arabia. One of the biggest problems that we are facing in this part of the world, in the United States, is the lack of knowledge of what’s happening on the other side.

I tend to agree with Ambassador Hughes that the US-Arab relationship is too important to be ignored. At the same time ignorance of facts will contribute to further the schism. We must rectify what is happening.

So if you don’t mind I really would like to talk about the reform movement in Saudi Arabia. I would like to be able to share with you certain aspects of what’s happening in Saudi Arabia that will perhaps entice you to begin to come back into the Arab world not only as investors but as friends — as we used to know each other before 9-11.

What’s happening in Saudi Arabia right now is probably the biggest boom that we will ever witness. It’s not like the boom of the 1970s. Then it was cash flow generation. It was people who used to come to Saudi Arabia to be able to make a deal and go back out. There wasn’t development of local industry or investments made.

Today there are two important things happening in Saudi Arabia. They are the advent of the private sector and wealth creation through development of a productive base in society. In the case of the former the government has made a conscious decision to bring in the private sector to work with the government in a partnership that will allow it to take the lead and be the driver in the next boom. As a result our economy today is one of the top 25 in the world. It accounts for one fifth of the GDP of the entire Middle East and one quarter of all trade among Arab countries. It generates two thirds of all the aggregate GDP formation within the Gulf Cooperation Council.

The kingdom contains more than 25 percent of the planet’s proven petroleum reserves, ranks fourth globally in its natural gas reserves and is a major player in the world petrochemical market. What is even more impressive is that there are vast quantities of underdeveloped precious industrial metals still to be tapped. In the next six months there will be a company — the private sector is going to own 50 percent along with Saudi Aramco — that will become one of the largest mining companies.

In 2005 the Kingdom recorded its highest budget surplus ever — $57 billion with a record GDP increase of 6.5 percent. Our new economic rankings tell the same story. For instance, the Inter-Arab Investment Guaranty Corporation recently ranked Saudi Arabia as leader in the Arab world in attracting foreign direct investment. Similarly the World Bank’s “Doing Business Report “ in 2006 increased the Kingdom’s competitiveness ranking from 67 to 38 and I would venture to say in the next three years we will probably be up to around the 25 level. This put the Kingdom ahead of any other Arab country as well as a number of EU countries, such as France, Italy and Portugal.

Jubail Industrial City on the east coast recently won the Financial Times award as city of the year with the best economic potential for the Middle East. It is expected to attract over $35 billion over the next decade alone. The recently inaugurated “Jubail 2” is expected to draw up to $40 billion of investments and provide about 60-65 thousand new jobs.

By 2020 the power sector will attract over $100 billion to double power generation capacity to 60,000 megawatts. The downstream conversion petrochemical industries will attract $120 billion, water treatment no less than $50 billion, another $50 billion in the transportation sector will include building a land bridge from the Gulf to the Red Sea. There’s going to be an investment in building infrastructure of about $140 billion. Natural gas will have almost $50 billion worth of investment, tourism about $50 billion plus, agriculture about $28 billion, IT and education will be about $40 billion.

In all there will be nearly $700 billion in investment opportunities over the next 20 years. Accepting the US Department of Commerce calculation that each one billion dollars of investment will generate about 15,000 jobs we can expect there will be 580 thousand people employed every year for the next fifteen years. These jobs will be in the private sector. The government in Saudi Arabia is not intending to be the employer of last resort. In fact, the number of people working in the government has dropped.

Saudi Arabia is experiencing a transition from public to private sector growth and its strategy for achieving balanced development through privatization is founded upon building an effective public-private partnership. Its objectives are straightforward and designed to enhance human resource development, to diversify government revenue sources away from an overwhelming dependence on the oil sector, to promote privatization of government owned entities, to use the private sector to enhance the bureaucratic efficiency and effectively controlling the public sector. At the same time Saudi Arabia will be building a knowledge-based society, and the circle will continue. As we move into the knowledge society we will increase our ability in human resources. It will also improve our bureaucratic capabilities and diversify incomes. The circle will continue to grow until human capital has reached higher levels.

In order to pursue these ambitious economic initiatives Saudi Arabia remains committed to building an ever more dynamic free market economy. It will have no restriction on capital movements. It will have a positive business climate. Capital market and tax reforms have recently been implemented. Saudi Arabia has embarked on a sweeping program of economic policy reforms to forge an ever expanding commercial prosperity. These reforms have achieved impressive successes and established an improved atmosphere of efficiency, greater transactional transparency, more effective governmental oversight and enhanced opportunities for foreign investment.

The accession of Saudi Arabia to the World Trade Organization along with these reforms have allowed the Kingdom greater access to more markets especially for petrochemical products. Saudi Arabia is reaching the best of global business standards, international regulations and protections. That is the IPR, which will ultimately have the effect of highlighting the international community’s confidence in Saudi Arabia.

So Saudi Arabia’s vision for the next 20 years is one of movement away from an oil supplier into an energy provider. I will be very happy to continue to elaborate on some of the points I brought up. Thank you very much.

Recorded and transcribed by SUSRIS.

Related Material
American and Arab Leaders as Agents of Change – Karen Hughes, Under Secretary for Public Diplomacy and Public Affairs – U.S.-Arab Economic Forum – SUSRIS IOI – July 7, 2006